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Chipping Away At The Craziest Welfare State In The World (Int'l Edition)

November 26, 1995

International -- Cover Story -- Europe

CHIPPING AWAY AT THE CRAZIEST WELFARE STATE IN THE WORLD (int'l edition)

Mady O'Brien has been cutting and styling hair since she came to the Netherlands from Indonesia at age 15. But when O'Brien, now 45, wanted to open her first shop 20 years ago, she had to fulfill one regulatory requirement after another.

First, there was the special hairdresser's diploma: That required three years of training. Then there was a mandatory one-year business-management course. After she found a desirable location in The Hague, she needed approval from officials who restricted the number of hair salons in the area to prevent excessive competition. O'Brien--the daughter of an Irishman and an Indonesian--thinks the market should pick the winners. "If you don't do a good job, you won't get customers," she says.

The Dutch government, in the hands of the conservatives since last year, has finally concluded that O'Brien is right. After decades of heavily regulating everything from medical fees to dog-grooming skills, policymakers are embarking on a sweeping deregulation program designed to stimulate competition, revitalize the economy and, of course, create jobs.

The deregulation is part of the Dutch effort to undo the worst excesses of their welfare state, now the most crazily generous in the world. The plan is to lower the cost of the welfare system without lowering the level of benefits. By dismantling a web of burdensome regulations, the government hopes to make it easier to start up and stay in business. Then, the theory goes, more people will work either for themselves or the new businesses--instead of clogging the welfare rolls. "No one has tried anything on this scale," said Mark Pearson, an economist at the Organization for Economic Cooperation & Development in Paris. "It is absolutely essential in order to break down the welfare mentality in the Netherlands, which is becoming pathological."

The government has already passed a number of laws to deregulate competition, but it's planning many more. Measures expected to be brought before the legislature include a proposal to ease restrictive antitakeover defenses, a law prohibiting price-fixing and cartels, a deregulation of medical fees and pharmaceutical practices, and the extension of total shopping hours from 55 hours to 96 hours a week. And starting next year, wallpaper hangers, toy shop owners, furniture makers, dog groomers, and other service and retail entrepreneurs won't be obliged to get special diplomas before going into business.

The government figures just lengthening shopping hours will eventually create 7,000 new jobs. The Federation of Dutch Enterprises also figures deregulation could save the private sector up to $9 million a year in regulatory red tape.

Mady O'Brien couldn't be happier. Since a new law allowed her to stay open six days a week and for longer hours each day, business has been booming. She has even had to hire an extra hairdresser. A small victory, but the Dutch need every one they can get.By Linda Bernier in The Hague